Six Sigma is the powerful methodology to drive improvement initiatives and reduce cost of quality. Therefore, it is very much essential to understand relation ...
Six Sigma and Cost of Quality in Automobile Industry S.N. Teli1, Dr.V.S. Majali2, Dr.U.M. Bhushi3 1. Research Scholar & Associate Prof. Mech. Engg. SCOE, Kharghar Navi Mumbai 2. Professor Mech. Engg. Dept.- GIT, Belgaum – Karnataka 3. Principal Sahyadri College of Engineering and Management- Mangalore. 1
Abstract
Core Idea and Objective of the Paper: The cost of poor Quality would help in analyzing the operating costs for effective and profitable business management. In the era of cut throat competition, success achieved by market leaders is credited to their improvement initiatives. The key is selecting high payback improvement projects and managing the improvement initiative to simultaneously deliver improved financial performance and greater customer satisfaction. Six Sigma is the powerful methodology to drive improvement initiatives and reduce cost of quality. Therefore, it is very much essential to understand relation between six sigma and cost of quality and its application in automobile industry. DMADV is powerful Six Sigma methodology and case study elaborates how assembly of 44 components simplified to 19 components leading to cost saving of Rs. 2785/- per unit of auxiliary valve for variable transmission. Key Words: Cost of Quality (COQ), Six Sigma, Auto Industry, Knowledge Management 2
Introduction
A common element within many of these successful companies is the use of powerful cost of poor quality concepts in connecting improvement priorities to strategic objectives, assessing the financial impact of poor quality, understanding the root causes of poor quality. The customer needs must be attended with minimum manufacturing costs, minimum lead time to launch the product in market and delivering better performance than the existing competitors in the market. Therefore Indian companies in order to compete with global companies, it is very much essential to be on par, in all spheres of business aspect. Cost and Quality are two very important aspects to be globally competitive, to capture market share, to retain customers to be in business and to achieve business excellence. After the existing literature review, a clear gap is visible as regards relation of powerful six sigma methodology, DMADV, for new design of product / process and or for improvement in existing product / process and reduction of cost of quality. Six Sigma is the powerful methodology to drive improvement initiatives and reduce cost of quality. Six Sigma is a disciplined, data-driven approach and methodology for eliminating defects in any process - from manufacturing to transactional and from product to service. To achieve Six Sigma, a process must not produce more than 3.4 defects per million opportunities. A Six Sigma opportunity is then the total quantity of chances for a defect. This is accomplished through the use of two Six Sigma sub-methodologies: DMAIC and DMADV. The Six Sigma DMAIC (Define Measure, Analyze, Improve, and Control) is an 1
improvement system for existing processes falling below specification and looking for incremental improvement. The Six Sigma DMADV (Define, Measure, Analyze, Design, and Verify) is an improvement system used to develop new processes or products at Six Sigma quality levels. Both Six Sigma processes are executed by Six Sigma Green Belts and Six Sigma Black Belts, and are overseen by Six Sigma Master Black Belts. (Douglas C. Montgomery, 2008) 3
Various Applications and Benefits of Six Sigma Methodology
Six Sigma is an “Industry Independent” methodology and has been successfully applied across: ➢ Manufacturing industry including Automotive, Aerospace, Health Equipment, FMCG, Electronic goods, Continuous process industries, Textiles, etc. ➢ Service industry including Telecom, Banking and Financial Services, Health care, Hotels, IT, ITES, Airlines, Cargo movement, Support Services, HR services, Marketing Services, etc. ➢ R&D organizations or in R&D functions of various organizations. The following are the areas in the automotive industry where Six Sigma is applicable TABLE 1: SIX SIGMA APPLICABILITY IN AUTOMOTIVE INDUSTRY Industry Areas Where Six Sigma Applicable ➢ Enhancing Supplier Quality. ➢ Improving Safety and Reliability of Finished Vehicles. ➢ Reducing Manufacturing defects at each stage. ➢ Using Design FMEA to understand and prevent any possible design failures. ➢ Reducing variation in all the critical parameters that impact the Automotive finished product. ➢ Improving the overall Incoming Material Quality or parts Quality. ➢ Optimizing Inventory levels for all major parts. ➢ Reducing time to manufacture. ➢ Reducing Design defects. ➢ Reducing Supplier Lead time i.e. the time taken by each supplier to deliver goods. ➢ Improving First time yield and Efficiency of each step in manufacturing assembly line. There are numerous benefits of Six Sigma, which is used as a way to address issues and problems. Among the benefits of Six Sigma is the decrease in defects that are allowed to reach the customer. Other benefits of Six Sigma includes the focus on customers, Improved customer loyalty, Reduced cycle time, Less waste, Data based decisions, Time management, Sustained gains and improvements, Systematic problem solving, Employee motivation, Data analysis before decision making, Faster to market, Team building, Improved customer relations, Assured strategic planning, Reductions of incidents, Measure value according to the customer, Better safety performance, Understanding of processes, Effective supply chain management, Design and redesign of products/services, Knowledge of competition, competitors, Develop leadership skills, Break down barriers between departments and functions, Management training, Improve presentation skills, Integration of products, services 2
and distribution, Use of standard operating procedures, Better decision making, Improving project management skills, Sustained improvements, Alignment with strategy vision and values, Increased margins, Greater market share, Supervisor training, Lower costs to provide goods and services and Fewer customer complaints. (Douglas C. Montgomery, 2008) Some organization cultures are fear based. Mistakes are not allowed, and employees are used to hiding defects. Six Sigma, on the other hand flourishes in an open and safe environment where defects are seen as improvement opportunities. (Hahn, 2005) These are only some of the benefits of Six Sigma. There are numerous benefits associated with these benefits directly / indirectly. (GOH, 2002) 4
Quality Costs
Quality Costs or Cost of Quality is a means to quantify the total cost of quality-related efforts and deficiencies. The "cost of quality" isn't the price of creating a quality product or service. It's the cost of NOT creating a quality product or service. Quality Costs represent the difference between the actual cost of a product or service and what the reduced cost would be if there was no possibility of substandard service, failure of products, or defects in their manufacture. (Larry Weinstein, May 2009) 4.1
Cost of Poor Quality
Many service companies avoid conducting cost of poor quality analysis because they find that the cost of conducting the evaluation and dealing with its intangible elements outweighs the benefits. However, if these companies take a more careful, penetrating look at their business processes they will continue to figure out new areas of improvement. The cost involved in fulfilling the gap between the desired and actual product/service quality. It also includes the cost of lost opportunity due to the loss of resources used in rectifying the defect. (Walid Abdul-Kader, 15 December 2010,) 4.1.1 Hard Savings Six Sigma project benefits that allow you to do the same amount of business with less employees (cost savings) or handle more business without adding people (cost avoidance). 4.1.2 Soft Savings Six Sigma project benefits reduced time to market, cost avoidance, lost profit avoidance; improved employee morale, enhanced image for the organization and other intangibles may result in additional savings to your organization, but are harder to quantify. (Arvind Chopra, 2011) TABLE 2: QUALITY COSTS AND DESCRIPTION Costs Description Direct poor-quality costs Direct COPQ can be directly derived from entries in the ➢ Controllable poor-quality company ledger. cost ➢ Controllable COPQ is directly controllable costs to ➢ Prevention cost ensure that only acceptable products and services ➢ Appraisal cost reach the customer 3
➢ ➢ ➢ ➢
Resultant poor-quality cost Internal error cost External error cost Equipment poor-quality cost
Indirect poor-quality costs ➢ Customer-incurred cost ➢ Customer-dissatisfaction cost ➢ Loss-of-reputation cost 4.2
➢ Resultant COPQ are costs incurred because unacceptable products and services were delivered to the customer, resulting from earlier decisions about how much to invest in controllable COPQ ➢ Equipment COPQ are costs to invest in equipment to measure, accept, or control a product or service It is treated separately from controllable costs to accommodate the effects of depreciation. Indirect COPQ is difficult to measure because it is a delayed result of time, effort, and financial costs incurred by the customer. These customer costs add up to lost sales and therefore do not appear in the company's ledger
The Six Sigma Philosophy of Cost of Quality
As a company moves towards becoming a six-sigma corporation the COPQ as a percentage of sales will drop drastically. The better your control over the process, the fewer defects you will have, reducing the cost of poor quality (Al-Dujaili, 2013).
TABLE 3: SIGMA LEVEL AND COPQ Sigma level 1 2 3 4 5 6
DPMO 691,000 309,000 67,000 6,200 230 3.4
Sigma Levels Quality level 31% 69% 93.3% 99.4% 99.98% 99.997%
COPQ >40% 25-40% 15-25% 5-10% 0-5%
4.2.1 The Taguchi Quality Loss Function(QLF) Dr.Genichi Taguchi developed Taguchi Methods-combined engineering and stastical methods that achive rapid improvents in cost and quality by optimizing product design and manufacuring process. Quality costs are usually quantified in terms of scarp and rework, warranty or other tangible costs. As we saw however these constitute only the “tip of the iceberg”. The remaining are hidden costs or long-term losses related to engineering/management
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FIGURE 1: COPQ VISUALIZED AS INTERNAL AND EXTERNAL FAILURE COSTS Taguchi defines quality as “ the loss imparted to society from the time the product is shipped. Fundamental to his approach to quality engineering is this concept of loss. Quality costs are usually quantified in terms of scarp and rework, warranty or othertangible costs. But the hidden costs or long-term losses related to engineering/management, time , inventory , customer dissatisfaction , and loss to company’s reputation, which eventually leads to loss of market share. Taguchi uses the Quality Loss Function(QLF) for this purpose. The way the QLF is established depends on the quality chararcteristic to judge the performance (quality). There are five types of Qaulity Charactristics. 1. Nominal the best (achiving a desired target value with minium variation, such as dimension) 2. Smaller the Better(Minimizing the response such as shrinkage & wear) 3. Larger the better(Maximizing a response, such as pull of force & tensile strength) 4. Attribute(counting data, such as apperance) 5. Dynamic(response varies depending on input, such as speed of fan drive should vary depending on the engine temperature)
L=Loss in Rs. K=Cost Coefficient Y=Value of quality character T=Target Value
FIGURE 2: TAGUCHI QUALITY LOSS FUNCTION VISUALIZED
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In this way of thinking, loss occurs not only when a product is outside the specifications, but also when a product falls within the specifications. Further it’s reasonable to belive that loss contiually increases as product deviates further from the target value, as the parabola/(QLF) as shown in fig.3 above.While a loss function may take on many forms.In short the the QLF is a measure of quality in monetary units that reflects not only immediate costs, such as scrap and rework, long term losses as well. (Loon Ching Tang, 2006) 4.3
Knowledge Management: Knowledge Management can be defined as the conscious strategy of putting tacit and explicit knowledge into action by creating context, an infrastructure, and learning cycles that enable people to find and use the collective knowledge of the enterprise. The purpose of KM is different than Six Sigma. The purpose of KM is to help the right information and knowledge flow to the right people at the right time so they can make decisions. Some of those decisions are going to be about improving a process, but the objective of KM is not the same as process improvement. KM approaches include selfservice, networks and communities of practice (CoPs), and the transfer of best practices. Selfservice involving content management, portals, search functions, and expertise locators is highly technology-enabled and involves explicit knowledge. (K.Karthikeyan) 4.3.1 Knowledge-based Six Sigma (KBSS): Knowledge Management (KM) is very important in this knowledge-based information society. If Six Sigma and KM are combined, it could become a very powerful management strategy. Knowledge Based Six Sigma (KBSS) as the combination of Six Sigma and KM is going to serve the purpose. KBSS can be defined as “A company-wide management strategy whose goal is to achieve process quality innovation corresponding to 6 sigma level and customer satisfaction through such activities as systematic generation/ storage/ dissemination of knowledge by utilizing the information technology of the Internet/intranet, data-bases and other devices.” As shown in Figure there are some differences between Six Sigma and KM. However, there also exist some areas of intersections such as data acquisition and utilization, data analysis, generation of information and so on. Six Sigma Knowledge Management
FIGURE 3: RELATION OF SIX SIGMA AND KNOWLEDGE MANAGEMENT
4.3.2 KM Best Practices: ➢ Creating systematic processes that enable knowledge to flow to the right people at the right time. ➢ Focusing on core business issues in order to avoid redundant efforts, accelerate the time to competency, make individual knowledge available to the organization, and cross boundaries and functions. ➢ Applying robust methodologies. ➢ Enabling new knowledge to be created and new problems to be solved. and
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➢ Placing the management focus on communication, involvement, accountability, and knowledge-related behavior. A lot of firms are trying to save on the cost of not knowing something by KM, like the duplication, waste, and mistakes of the past. They’re trying to shorten their learning cycles, cross silos and boundaries (which is one of the things we think is going to be a value-added to Six Sigma), and apply robust methodologies. And it also focuses on knowledge creation, which is expected from Design for Six Sigma. 5
Conclusions and Implications
Cost of Quality and Six Sigma level are opposite of each other and by increasing the Sigma Level, we have decreased level in cost of quality. Cost of rework, replacement or waste goes down with increase in sigma. Sigma level basically measure number of defects at various levels. When errors are more, it leads to more waste or rework resulting into more COQ. Tangible and intangible are the two types of cost of poor quality. Cost of rework, inspection, scrap, warranty and rejection refers to tangible cost. Decrease in sales, late delivery, annoyed customer, excess inventory handling cost, engineering changes cost refers to intangible cost. To reduce COQ, we need to make changes in Man, Machine, Method, Management or Environment. KM & Six Sigma are quickly infiltrating business management systems with problem-solving and process-optimization methodologies. Six Sigma should not be viewed as a quality program that is commissioned to reduce defects but as a methodology that helps companies better meet the needs of their business and KM shares this goal. References: 1. Al-Dujaili, M. A. (2013). Study of the relation between types of the quality costs and its impact on productivity and costs: a verification in manufacturing industries. Total Quality Management , Vol. 24, No. 4, 397–419. 2. Arvind Chopra, D. G. (2011). Behavior patterns of quality cost categories. The TQM Journal , 510-515. 3. Douglas C. Montgomery, W. H. (2008). An Overview of Six Sigma. International Statistical Review , 329–346. 4. GOH, T. N. (2002). A Strategic Assessment Of Six Sigma. Quality And Reliability Engineering International , 18: 403–410. 5. Hahn, G. J. (2005). Six Sigma: 20 Key Lessons Learned. Quality And Reliability Engineering International , 21:225–233. 6. K.Karthikeyan, R. R. (n.d.). Impact of Knowledge Management Practices in Indian Automobile Industry –An Empirical Investigation. 7. Larry Weinstein, R. J. ( May 2009,). Costs of quality and maintenance: Improvement approaches. Total Quality Management , Vol. 20, No. 5, 497–507.
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8. Loon Ching Tang, T. N. ( 2006). Taguchi Methods: Some Technical, Cultural and Pedagogical Perspectives. Six Sigma: Advanced Tools for Black Belts and Master Black Belts , 267–295. 9. Walid Abdul-Kader, O. G. (15 December 2010,). An integrated model for optimisation of production and quality costs. International Journal of Production Research , Vol. 48, No. 24, 7357–7370.
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